Stocks reach for records as U.S. jobless claims dive

Europe’s financial markets made a solid start to the second half of the year on Thursday, with stocks brushing off a rapid re-acceleration in coronavirus cases and oil and the dollar extending their H1 rallies.

London, Frankfurt, Paris and Milan overcame a mid-morning wobble to keep the pan-European STOXX 600 reaching for a record high. Wall Street, which had hit its fifth in a row on Wednesday, was cheered by 21-year low in jobless claims.[.EU] (N)

In an Asia session thinned by a holiday in Hong Kong, Japan’s Nikkei had fallen 0.3% (T) and the yen hit a 15-month low as sources in Tokyo said COVID restrictions were likely to be extended. [FRX/]

There was little sign of oil prices easing off, either despite reports OPEC and other oil producers could soon increase production. Brent was up nearly 2.5% at just over $76 a barrel after a roaring 45% first-half rise had scored one its best starts to a year on record.

Euro zone government bond yields also inched up as the latest economic data showed the 19-country bloc’s manufacturing sector expanded at a record pace last month. Firms are also seeing the steepest rise in raw materials costs in well over two decades.

“Euro zone manufacturing continued to grow at a rate unbeaten in almost 24 years of survey history in June as demand surged with the further relaxation of COVID-19 containment measures,” said Chris Williamson, chief business economist at IHS Markit.

“However, the sheer speed of the recent upsurge in demand has led to a sellers’ market as capacity and transportation constraints limit the availability of inputs to factories, which have in turn driven industrial prices higher at a rate not previously witnessed by the survey.”

Germany’s benchmark 10-year Bund yield was up one basis point on the day, at -0.19%. French, Spanish and Italian 10-year yields were up by a similar amount.

Most major economies have seen their government bond yields, which drive borrowing costs in their economies, rise sharply this year on bets that central banks will slow stimulus as a global recovery pushes up inflation.

Due to a shortage of shipping containers and supply chains hugely affected by the pandemic, the euro zone data’s input prices index soared to 88.5 from 87.1 — by far the highest in the survey’s history. The bloc’s inflation had dipped to 1.9% last month, official data on Wednesday had shown.

“Right now it’s all about inflation trends and central bank policy,” Indosuez Wealth Management’s chief investment officer at Vincent Manuel, adding that the question was whether the current “bump” in inflation would prove as temporary as both markets and policymakers are predicting.

Sweden’s crown barely budged as its central bank kept its interest rates at zero “The most sensible thing is to maintain the expansionary monetary policy we are following today, because there are bigger risks in decreasing support too early than in keeping it too long,” its veteran head Stefan Ingves said.

TAIWAN TENSIONS

In China overnight, equity markets had cheered the centenary of the Communist Party with a small rise, but a nationalist address from President Xi Jinping in Tiananmen Square (NYSE:SQ) did little to soothe geopolitical nerves and the yuan weakened very slightly. [CNY/]

President Xi pledged to complete “reunification” with self-ruled Taiwan and vowed to “smash” any attempts at formal independence.

Data in Asia also painted a mixed picture, with Japanese manufacturers’ mood at a two-and-a-half year high, but factory activity slowing down through the region – particularly in Vietnam and Malaysia – on a resurgent pandemic.

Slower vaccination rates in Asia and the extension of restrictions to curb the spread of the virus – as well as a regulatory crackdown on Chinese tech giants – have had regional markets lagging this year.

The MSCI ex-Japan index closed out the first half with a gain of 5.8% compared with world stocks’ rise of 11.4% and a gain of 14.4% for the S&P 500, which had logged its fifth consecutive record as it closed out H1 on Wednesday. (N)

However, it is U.S. payrolls on Friday that traders think could jolt markets from a slumber that has locked currencies in some of their tightest trading ranges for decades. Initial claims for state unemployment benefits dropped 51,000 to a seasonally adjusted 364,000 for the week ended June 26, the Labor Department said on Thursday, although they are an unreliable guide to Friday’s broader indicators.

As well as the lows being set by the Japanese yen at the moment, overnight dollar/yen implied volatility stands at its highest in more than three months.

June had been the best month for the dollar since Donald Trump was elected U.S. president in November 2016, MUFG’s currency analyst Lee Hardman said.

“The key trigger,” he said “has been the hawkish shift in the Fed’s policy stance. The more hawkish guidance has left market participants less confident that the Fed will maintain loose policy in the coming years.”

The U.S. dollar index, which measures the greenback against a basket of six major currencies, hit 92.500, its highest since April. The yield on benchmark ten-year U.S. Treasuries was up a touch at 1.4747%.

In commodity markets, prices for metals seemed to be stabilising below May peaks even as oil was eyeing multi-year highs touched earlier in the week. [O/R]

Brent crude futures were last up 1.31% at $75.60 a barrel.

Food staple corn, which has surged over 20% this year, extended a sharp overnight bounce too as disappointing U.S. planting figures supported prices. [GRA/]